Northwestern Mutual Life - Whole Life Policy Review

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matjen
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Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

Hello Everyone,

I guess it is my turn to have the Bogleheads give me a hand with a Northwestern Mutual Whole Life policy. The policy is owned by my wife who is an ER Doc that never heard of White Coat Investor. ;-)

My wife and I married a bit later in life (me late 40s, her early 40s). Her main financial adviser was a NML agent and she was "abused" as can be expected. I immediately got her out of the loaded and high ER mutual funds but decided to leave the policy and stew on it for a couple of years since I wasn't as knowledgeable in this area. Frankly my thoughts were that this type of policy ain't great (to the say the least) but it isn't the end of the world either for some. I guess I view this as a low returning, stable bond fund...but frankly I'm not sure why we have it. At this point we don't even have a child so that is a 50/50 proposition and we are already financially set. So I'm not sure what the point is.

Our only debt is a mortgage on my wife's prior condo which is rented (just paid off mortgage last week on our home), a mid-7 figure portfolio, and no heirs at this point. Both of our siblings are very successful and our parents are secure and older.

Pertinent facts as of 2/1/2014:
Policy is whole life, purchased in early 2008
Basic Amount: 500K
From Dividends: $21,752
Total Death Benefit $521,752
Additional Benefits: Waiver Premium Benefit
Total Cash Value: $31,462.19
Dividends used to: increase cash value and coverage
Past Year's Cash Value Increase: $6,904.72
2014 Dividend: $1,273.66
Monthly Premium: $584.21 (we pay monthly so at a minimum need to change that)
Yearly Premium: $6,715
Beneficiaries: My wife's 75-year-old parents

I have a recent illustration as well.
2014-15 $37,293 guaranteed cash value
2015-16 $43,296 guaranteed cash value
2016-17 $49,480 guaranteed cash value

So please tell me your thoughts on this. One part of me thinks it isn't the end of the world given our financial posture. Hopefully a child will come along soon and the beneficiary would change, etc. The other part of me says that given our financial posture this serves zero purpose regardless of child situation.

Thoughts?
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Buysider
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by Buysider »

You seem to have the outline of all the relevant issues, so I don't think there is much more to think about than how you view the "benefit" of having a stable bond fund for a very small amount of money. Given the size of your portfolio, I'm not sure it makes much of a difference and the hassle factor may be enough to dump it. Also, I'd have to check with an NML agent, but I think they get a small trailer for the first 10 years of the policy life - your canceling may nick him/her, which you could view as a good or bad thing, depending if you get disability through NML or play golf with them (ha ha).

Good luck with the child issue. a good friend of ours was in a similar situation and went from 0 kids at 40 to 3 kids by 45. The financial changes of that were the least of their consideration.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by dhodson »

Paying monthly has a huge fee associated with it.

You posted statement numbers and not illustration. You have to request an in force illustration.

Keep in mind they invest primarily in treasuries and bonds but have huge costs associated with it. The cash value may or may not be bond like after a few decades.

As u know white coat investor has tons on this.
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matjen
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

dhodson wrote:Paying monthly has a huge fee associated with it.

You posted statement numbers and not illustration. You have to request an in force illustration.

Keep in mind they invest primarily in treasuries and bonds but have huge costs associated with it. The cash value may or may not be bond like after a few decades.

As u know white coat investor has tons on this.
Thanks for your thoughts dhodson. I do have the inforce illustration prepared 3/27/14. Those cash surrender values came from that. Not sure what numbers I should be posting since there are about a zillion of them on those 5 pages. ;-)
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

Buysider wrote:You seem to have the outline of all the relevant issues, so I don't think there is much more to think about than how you view the "benefit" of having a stable bond fund for a very small amount of money. Given the size of your portfolio, I'm not sure it makes much of a difference and the hassle factor may be enough to dump it. Also, I'd have to check with an NML agent, but I think they get a small trailer for the first 10 years of the policy life - your canceling may nick him/her, which you could view as a good or bad thing, depending if you get disability through NML or play golf with them (ha ha).

Good luck with the child issue. a good friend of ours was in a similar situation and went from 0 kids at 40 to 3 kids by 45. The financial changes of that were the least of their consideration.
Thanks for the well wishes Buysider. I think your first sentence nails my thoughts/dilemma as well. I have an "outline" of the issues but I never seem able to fully grasp or have a solid reason for doing anything (one way or the other). That was one of the reasons I didn't touch it...first do no harm. But it irks me and I know that I am getting into that sweet spot area where it is time to fish or cut bait given the age of the policy. Figured it was time to open it up to the Bogleheads and let everyone have at it.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by Grt2bOutdoors »

dhodson wrote:Paying monthly has a huge fee associated with it.

You posted statement numbers and not illustration. You have to request an in force illustration.

Keep in mind they invest primarily in treasuries and bonds but have huge costs associated with it. The cash value may or may not be bond like after a few decades.

As u know white coat investor has tons on this.
I now see even more clearly why "buy term and invest the rest" clearly beats the alternative. A 30 year policy for someone less than age 40, excellent health and female would cost less than $1k per year, after 6 years they could have accumulated at least 30K. $1,400 gets you a million dollar policy for 30 years, term.
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HomerJ
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by HomerJ »

matjen wrote: Pertinent facts as of 2/1/2014:
Policy is whole life, purchased in early 2008
Basic Amount: 500K
From Dividends: $21,752
Total Death Benefit $521,752
Additional Benefits: Waiver Premium Benefit
Total Cash Value: $31,462.19
Dividends used to: increase cash value and coverage
Past Year's Cash Value Increase: $6,904.72
2014 Dividend: $1,273.66
Monthly Premium: $584.21 (we pay monthly so at a minimum need to change that)
Yearly Premium: $6,715
Beneficiaries: My wife's 75-year-old parents

I have a recent illustration as well.
2014-15 $37,293 guaranteed cash value
2015-16 $43,296 guaranteed cash value
2016-17 $49,480 guaranteed cash value

So please tell me your thoughts on this. One part of me thinks it isn't the end of the world given our financial posture. Hopefully a child will come along soon and the beneficiary would change, etc. The other part of me says that given our financial posture this serves zero purpose regardless of child situation.

Thoughts?
So you've paid about $7000 a year for the last 6 years.... Which is $42,000... And your cash value is $31,462. Excellent investment... :) Cost of $500k term-life insurance for a late 30s-early 40s woman is around $500 a year, so that accounts for $3000... But you're still at $31,462 when you'd be at $39,000 even if you had stuffed the premiums in a mattress.

Note you paid 0% taxes. That's how they sell it, you know... You're a high-income person... need to shelter yourself from taxes... Of course, paying taxes on a 3% bond fund is a lot better than earning 0% plus you give the insurance company $7500 for their trouble.

Going forward, the guaranteed cash value is still growing slower than your premiums.

Why would you even think about keeping this policy when you don't need it, and the insurance company is taking money from you every year? Even if you had a kid, you have zero need for this policy.
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mephistophles
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by mephistophles »

matjen wrote:Hello Everyone,

I guess it is my turn to have the Bogleheads give me a hand with a Northwestern Mutual Whole Life policy. The policy is owned by my wife who is an ER Doc that never heard of White Coat Investor. ;-)
Thoughts?
Thanks for your PM. Based on your situation I would recommend the following:
1. Since you might be planning for children, you and your wife might apply for a million or two of term insurance. If you get a good rating, put it inforce and drop the Northwestern policy. You could also do a 1035 exchange to a Vanguard deferred annuity policy, thus using your total cost basis of the whole life policy to your advantage. Annuities have some tax advantages and may have some creditor protection. The creditor protection is not always clear cut and can depend on your state.
2. There are any number of Vanguard and similar low expense load investments that could produce far superior results to a whole life policy.
3. Make sure you have or apply for high quality disability insurance.
4. Make sure there is a good professional liability policy on your wife, and you depending on what you do. Also an umbrella liability policy on your auto and home.
5. Read everything in whitecoat investors blog (ER doc) as he is a doc and specializes in many aspects of financial and other advice for docs.
Best regards,
ole meph
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matjen
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

mephistophles wrote:
matjen wrote:Hello Everyone,

I guess it is my turn to have the Bogleheads give me a hand with a Northwestern Mutual Whole Life policy. The policy is owned by my wife who is an ER Doc that never heard of White Coat Investor. ;-)
Thoughts?
Thanks for your PM. Based on your situation I would recommend the following:
1. Since you might be planning for children, you and your wife might apply for a million or two of term insurance. If you get a good rating, put it inforce and drop the Northwestern policy. You could also do a 1035 exchange to a Vanguard deferred annuity policy, thus using your total cost basis of the whole life policy to your advantage. Annuities have some tax advantages and may have some creditor protection. The creditor protection is not always clear cut and can depend on your state.
2. There are any number of Vanguard and similar low expense load investments that could produce far superior results to a whole life policy.
3. Make sure you have or apply for high quality disability insurance.
4. Make sure there is a good professional liability policy on your wife, and you depending on what you do. Also an umbrella liability policy on your auto and home.
5. Read everything in whitecoat investors blog (ER doc) as he is a doc and specializes in many aspects of financial and other advice for docs.
Best regards,
ole meph
Thank you for your response Meph.

I have and do spend a fair amount of time at the whitecoat investor's (WCI) blog. That has been a major influence on me just wanting to dump the whole life policy, but interestingly enough you brought up the disability piece at #3. My wife made an error (in my judgment) by never getting a disability policy as a resident (she just has the weak one that comes with her job). My initial thoughts when I reviewed our combined situation was to dump the whole life and get her into a good disability policy. But they are very expensive.

When I read the WCI, the thread that comes through on any of the insurance discussions is do x now or pay y for the time being...until you are financially well off. Basically until you have won the game and are self-insured. I think both of us could stop working right now if we really wanted to (and I will sooner rather than later). So I have shied away from the disability piece and continue to roll the dice. Perhaps WCI will change his thoughts (or perhaps I am misinterpreting) when he gets a bit older and has even more $ socked away but still wants a solid disability policy.

Does that make sense?
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MathKid
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by MathKid »

I know you mentioned you read WCI, but have you seen this article yet from last week?

http://whitecoatinvestor.com/how-to-dum ... fe-policy/

I think it addresses most of your questions.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by dhodson »

In my view, the only way to justify keeping it involves wanting to leave some money behind at eventual death and willing to fund this thing at least until dividends are greater than premiums. The death benefit return is much higher than the cash value so you want that and must be committed to getting that. To access some living benefit you take a loan against the policy late in life( you could also surrender some paid up additions) for up to 90% of the csv. The loan will accumulate interest so u only want to do that later on. Your heirs will get the death benefit minus this loan amount. This way the money is income tax free. If you don't want to leave any money then either surrender or 1035 exchange to low cost variable annuity like through vanguard.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

Thank you dhodson, homerj,and mathkid for your replies.

All very good. Mathkid I had not noticed that recent WCI post and will look at it more carefully.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by mephistophles »

matjen wrote:
mephistophles wrote:
matjen wrote:Hello Everyone,

I guess it is my turn to have the Bogleheads give me a hand with a Northwestern Mutual Whole Life policy. The policy is owned by my wife who is an ER Doc that never heard of White Coat Investor. ;-)
Thoughts?
Thanks for your PM. Based on your situation I would recommend the following:
1. Since you might be planning for children, you and your wife might apply for a million or two of term insurance. If you get a good rating, put it inforce and drop the Northwestern policy. You could also do a 1035 exchange to a Vanguard deferred annuity policy, thus using your total cost basis of the whole life policy to your advantage. Annuities have some tax advantages and may have some creditor protection. The creditor protection is not always clear cut and can depend on your state.
2. There are any number of Vanguard and similar low expense load investments that could produce far superior results to a whole life policy.
3. Make sure you have or apply for high quality disability insurance.
4. Make sure there is a good professional liability policy on your wife, and you depending on what you do. Also an umbrella liability policy on your auto and home.
5. Read everything in whitecoat investors blog (ER doc) as he is a doc and specializes in many aspects of financial and other advice for docs.
Best regards,
ole meph
Thank you for your response Meph.

I have and do spend a fair amount of time at the whitecoat investor's (WCI) blog. That has been a major influence on me just wanting to dump the whole life policy, but interestingly enough you brought up the disability piece at #3. My wife made an error (in my judgment) by never getting a disability policy as a resident (she just has the weak one that comes with her job). My initial thoughts when I reviewed our combined situation was to dump the whole life and get her into a good disability policy. But they are very expensive.

When I read the WCI, the thread that comes through on any of the insurance discussions is do x now or pay y for the time being...until you are financially well off. Basically until you have won the game and are self-insured. I think both of us could stop working right now if we really wanted to (and I will sooner rather than later). So I have shied away from the disability piece and continue to roll the dice. Perhaps WCI will change his thoughts (or perhaps I am misinterpreting) when he gets a bit older and has even more $ socked away but still wants a solid disability policy.

Does that make sense?
matjen,
Please allow me to clarify my prior post. In suggestion # 5, I recommend that you "read" WCI as that site and its author provide a lot of insight and good ideas for docs. That said, I suggest that you use that and other sources to arrive at your own decisions on insurance and investments, estate planning, etc. Do keep in mind that most of what you read on any website, and on bogleheads is the opinion or opinions of the posters or writer. All opinions are biased to a lesser or greater degree. They are not facts.

I would also strongly urge you to use the very high quality advice given by some posters on this Boglehead forum. On the subject of insurance you will find more expertise here with a number of agent and non-agent authors. On the subject of Social Security you will find that SSCRITIC has forgotten more than almost anybody knows. On Bonds, go to Mel. On simplicity and common sense go to Taylor. For background training go to our WIKI.

As far as disability insurance, rolling the dice is arguably the riskiest financial gamble anyone could make. For the non-wealthy, our most valuable asset is our "earning power." You wouldn't go without auto or home insurance, and yet they are just a few eggs laid by your golden goose--your earning power.
ole meph
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by HomerJ »

mephistophles wrote:I would also strongly urge you to use the very high quality advice given by some posters on this Boglehead forum. On the subject of insurance you will find more expertise here with a number of agent and non-agent authors. On the subject of Social Security you will find that SSCRITIC has forgotten more than almost anybody knows. On Bonds, go to Mel. On simplicity and common sense go to Taylor. For background training go to our WIKI.
And for insurance questions, go to ole meph here... He really does know his stuff.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by dhodson »

Keep in mind that if u do purchase disability that nwm is not true own occupation. If u are only planning on working a few years then get graded instead of level coverage. Also keep in mind that if one were disabled there might be additional costs besides just lost earnings.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by LadyGeek »

This thread is now in the Northwestern Mutual Life - Whole Life Policy Review forum. Let me help with the wiki.

Some background info to supplement dhodson: Disability insurance

Reading material: The White Coat Investor
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by tj »

If they have enough to retire now, why would they need disability insurance?
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by White Coat Investor »

matjen wrote:Hello Everyone,

I guess it is my turn to have the Bogleheads give me a hand with a Northwestern Mutual Whole Life policy. The policy is owned by my wife who is an ER Doc that never heard of White Coat Investor. ;-)

My wife and I married a bit later in life (me late 40s, her early 40s). Her main financial adviser was a NML agent and she was "abused" as can be expected. I immediately got her out of the loaded and high ER mutual funds but decided to leave the policy and stew on it for a couple of years since I wasn't as knowledgeable in this area. Frankly my thoughts were that this type of policy ain't great (to the say the least) but it isn't the end of the world either for some. I guess I view this as a low returning, stable bond fund...but frankly I'm not sure why we have it. At this point we don't even have a child so that is a 50/50 proposition and we are already financially set. So I'm not sure what the point is.

So please tell me your thoughts on this. One part of me thinks it isn't the end of the world given our financial posture. Hopefully a child will come along soon and the beneficiary would change, etc. The other part of me says that given our financial posture this serves zero purpose regardless of child situation.

Thoughts?
1) You're absolutely right that it's not the end of the world. There are far bigger mistakes to make than having part of your portfolio invested in a whole life policy. Held for the long-term (i.e. until death) I'd expect returns on the order of 3-5% on a whole life policy.

2) You're also absolutely right that you don't seem to need a whole life policy.

3) You're also absolutely right that you are already financially set, and probably don't need life insurance at all given your mid 7 figure portfolio. I assume something around $5 Million.

4) You're also already 6 years into the policy. The worst returns are now water under the bridge.

Your only question to answer now is do you want this as an investment? It's less than 1% of your portfolio at this point, and hardly worth the hassle, so I'd cash it out for simplicity's sake. But it really doesn't matter what you do with 1% of your portfolio. Buy bitcoins or beanie babies if you like. But the way to make the decision is to get an inforce illustration, pick a date say 30 years out and see what the guaranteed and projected cash values will be and calculate their rates of return. Then guess where in that range you'll end up. If that is acceptable to you, then keep the policy. If it isn't, then cancel it. Nothing else to it. I'll even help you with the calculations (use the excel rate function) if you send me the in force illustration. You can also pay this guy to evaluate your policy:

http://www.evaluatelifeinsurance.org/

He's a lot smarter than me, but does charge $100 more! (I've noticed that price keeps going up, he must have plenty of business.)

Listen to Ole Meph about insurance. I had a disagreement with him once, but I can't recall what it was. I don't think it was about insurance. I know a lot about insurance compared to most docs, but Ole Meph knows a lot about insurance compared to everyone.

I can't, for the life of me, figure out why either of you would have disability insurance with a $5 Million portfolio. What is your "number" and how does your portfolio compare to that? If the portfolio is larger than your "financial independence number", then I see little point in paying for disability or life insurance. I plan to cancel my disability and life insurance policies when I hit somewhere in the $2-3 Million range, hopefully within 15 years.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

dhodson wrote:Keep in mind that if u do purchase disability that nwm is not true own occupation. If u are only planning on working a few years then get graded instead of level coverage. Also keep in mind that if one were disabled there might be additional costs besides just lost earnings.
Thank you. Yes, I actually was seriously considering Disability a couple years back (and may revisit) and had examined plans from Berkshire/Gaurdian, MetLife and Principle. Unless NWM was clearly the best option I would avoid doing anything to give that rep any business. Turns out it isn't so problem solved if we go down that path.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

EmergDoc wrote:...Your only question to answer now is do you want this as an investment? It's less than 1% of your portfolio at this point, and hardly worth the hassle, so I'd cash it out for simplicity's sake. But it really doesn't matter what you do with 1% of your portfolio. Buy bitcoins or beanie babies if you like. But the way to make the decision is to get an inforce illustration, pick a date say 30 years out and see what the guaranteed and projected cash values will be and calculate their rates of return. Then guess where in that range you'll end up. If that is acceptable to you, then keep the policy. If it isn't, then cancel it. Nothing else to it. I'll even help you with the calculations (use the excel rate function) if you send me the in force illustration. You can also pay this guy to evaluate your policy:

http://www.evaluatelifeinsurance.org/

He's a lot smarter than me, but does charge $100 more! (I've noticed that price keeps going up, he must have plenty of business.)

Listen to Ole Meph about insurance. I had a disagreement with him once, but I can't recall what it was. I don't think it was about insurance. I know a lot about insurance compared to most docs, but Ole Meph knows a lot about insurance compared to everyone.
Thank you for your response EmergDoc. Glad I wasn't misrepresenting your disability insurance strategy/perspective.

And Meph and dhodson thank your for your continued attention to my question.

Yes, I did reach out to James Hunt a couple years back. This forum and your blog are large influences on me. The whole life discussions at both places are almost universally negative. However James Hunt pretty strongly disagrees. I think what is weighing on my mind a bit is the forced outflow of nearly $600/mo until dividends can pay the policy fees. That will be in 2028-2029! As I look at winding down (me not the DW) I am trying to reduce the monthly nut a tad. I guess it is just a close call. That is why I asked everyone for their thoughts.

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bluemarlin08
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by bluemarlin08 »

I don't really see the need for life or disability coverage. The problem is trying to predict what dividends will do in the future, I doubt you will ever earn 4-5%, true return. My view is dividends will continue to lag for the foreseeable future.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by Jack FFR1846 »

Is the renewal commission in that letter meaning 5% of yearly, or $335.75? So with the return being quoted, that's removed, right?
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by White Coat Investor »

Keep in mind Hunt's analysis assumes you would buy term insurance to replace the insurance provided by the WL you're basically using just as an investment. Sure, that insurance has some value, but given that you have no need for insurance, the value to you probably isn't what it actually costs.

Can you post the page from your illustration showing the guaranteed and the projected dividend scales with future values?
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matjen
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

Jack FFR1846 wrote:Is the renewal commission in that letter meaning 5% of yearly, or $335.75? So with the return being quoted, that's removed, right?
I think he is accounting for that and giving it as the reason the return is lower until year 11.

I figure I might as well show his tables. This is from a little over a year ago. I should note that he lists $39,152 as the cash surrender value in year 7 (this year). My brand new inforce illustration has it at $38,838 and guaranteed at $37,293.

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Last edited by matjen on Tue Apr 22, 2014 4:13 pm, edited 1 time in total.
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matjen
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

EmergDoc wrote:Keep in mind Hunt's analysis assumes you would buy term insurance to replace the insurance provided by the WL you're basically using just as an investment. Sure, that insurance has some value, but given that you have no need for insurance, the value to you probably isn't what it actually costs.

Can you post the page from your illustration showing the guaranteed and the projected dividend scales with future values?
Here is the most recent inforce doc for the next 20 years EmergDoc.

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2retire
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by 2retire »

I don't have anything useful to add, I just wanted to thank you for actually posting your in-force illustration for all to see. We often see them mentioned on this site, and I always wondered what they were. This could be a good learning experience since we now have something to look at.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by bluemarlin08 »

I would be hesitant to count on anything that isn't guaranteed. You could ask for an inforce showing a decrease in dividend crediting rates by 100 and 200 basis points.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by HomerJ »

Can I point out that the GUARENTEED amount of $182,706 after 26 years is around a 0.5% annual return... I mean, the premiums paid in add up to $174,590...

You give them $174,590 over 26 years, and the best they can guarantee is $182,706?

Even the projected number of $298,619 is only a 3.75% annual return...

What you get is bonds minus 2% fees... There's no free money here... Insurance company invests in bonds, subtracts their fees, and gives you the difference. If bonds make 6% a year over the next 26 years, you might get that projected number... If bonds make 2% a year over the next 26 years, you'll get the guaranteed number... Either way, investing directly in bonds would make you more and be just as safe.

Because if bonds return -3% a year over the next 26 years, don't think the whole life policy would have been safer... The insurance company will probably go bankrupt in that kind of environment.

Why would you stick with an "investment" that only guarentees a 0.5% return?
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by Mel Lindauer »

matjen wrote:
EmergDoc wrote:Keep in mind Hunt's analysis assumes you would buy term insurance to replace the insurance provided by the WL you're basically using just as an investment. Sure, that insurance has some value, but given that you have no need for insurance, the value to you probably isn't what it actually costs.

Can you post the page from your illustration showing the guaranteed and the projected dividend scales with future values?
Here is the most recent inforce doc for the next 20 years EmergDoc.

Image
Did anyone else notice the "Non-guaranteed" heading and the asterisk leading to the footnote that says "Non-guaranteed"?

Basically, that means those figures are meaningless as far as guarantees go.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by LadyGeek »

I did some research on reading an in-force illustration.

Here's a tutorial from the American Institute of Certified Public Accountants: Understanding Life Insurance Illustrations (useful- the link seems to be broken now)

Compare to the one from New York Life: Your Whole Life Policy Illustration (not useful)

We have a wiki article: Life insurance

Is there any authoritative material that could be used to provide a "How to read an in-force illustration" section in the wiki? If someone is willing to take a stab at it, I'll put it into the wiki.

Update: The tutorial link seems to be working now.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by mephistophles »

matjen,
When I read your initial post, I didn't pick up on the mid-seven figure investment portfolio. My mind's eye saw it as mid-six figures. So, DI not an issue based on information I have. Still no need to keep the whole life.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

Thank you for the additional info/links LadyGeek. I will take a look...as much as I hate math. Meph thanks for the clarification...makes sense to me now. Homer, I can't argue with your basic numbers I suppose but you are ignoring the "value" of the life insurance component it seems to me. However, given our fortunate financial posture, that "value" is not as much as it otherwise might be I think. Since we may be making this a teachable moment (well for me and 2retire at least!), let me post the next 20 years as well in case that is of value/importance to anyone's analysis (EmergDoc?). Thanks once again everyone.

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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

So I wanted to close the loop on this for the benefit of those kind enough to respond and provide their thoughts. My wife and I have decided to outright cancel the policy. The letter has been drafted and signed and will go out tomorrow via email and snail mail. Policy will be cancelled effectively at the end of the month. We have put more money in than we will receive back at this point so I don't think there are any major tax considerations and we are willing to leave any small tax benefit on the table in exchange for the cash which we plan on putting toward the mortgage on a rental property.

Thanks once again to everyone for their input.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by Toons »

matjen wrote:So I wanted to close the loop on this for the benefit of those kind enough to respond and provide their thoughts. My wife and I have decided to outright cancel the policy. The letter has been drafted and signed and will go out tomorrow via email and snail mail. Policy will be cancelled effectively at the end of the month. We have put more money in than we will receive back at this point so I don't think there are any major tax considerations and we are willing to leave any small tax benefit on the table in exchange for the cash which we plan on putting toward the mortgage on a rental property.

Thanks once again to everyone for their input.
+1 :happy
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by dhodson »

out of curiosity will you inform Hunt as he asked?
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

dhodson wrote:out of curiosity will you inform Hunt as he asked?
You know I really didn't think about it until you brought it up. I'll hedge by saying that if I can contact him easily via email (I think I can), then I will let him know and give him the basic reasons. I think the long and short of this is that given our current financial posture, this policy doesn't really serve as anything other than a moderate stable value fund. The death benefit is of no use to us now and, even if a child arrives, will have limited value given the other anticipated assets. Viewed in isolation the policy (and how far into it we are) doesn't look that horrible I suppose but as part of the entire picture not as enticing.

If we communicate and he adds some new info I will be sure to add it to this thread. I assume that is why you were curious dhodson?
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by dhodson »

matjen wrote:
dhodson wrote:out of curiosity will you inform Hunt as he asked?
You know I really didn't think about it until you brought it up. I'll hedge by saying that if I can contact him easily via email (I think I can), then I will let him know and give him the basic reasons. I think the long and short of this is that given our current financial posture, this policy doesn't really serve as anything other than a moderate stable value fund. The death benefit is of no use to us now and, even if a child arrives, will have limited value given the other anticipated assets. Viewed in isolation the policy (and how far into it we are) doesn't look that horrible I suppose but as part of the entire picture not as enticing.

If we communicate and he adds some new info I will be sure to add it to this thread. I assume that is why you were curious dhodson?
Partly. Let me just say i agree with your thoughts (not that it matters of course bc im just some random person on the internet). Ive used Hunt in the past to evaluate a policy myself. I found him to be a fine person but his method assumes you value the insurance. Additionally if you look at his most recent post about insurance, he seems to be bending towards VULs bc of concern of how WL will perform in the future. I have no idea how much detail you gave him about yourself but i find his conclusions a little too insurance pro for someone who doesnt need any insurance.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

dhodson wrote:Partly. Let me just say i agree with your thoughts (not that it matters of course bc im just some random person on the internet)
Nonsense! You are dhodson! Although your advice is free, at least I know your mortgage payment isn't reliant on it. I figure if I have you, Ole Meph, and EmergDoc (not to mention Homer and the others) questioning the need for the policy then I am on pretty solid footing. :idea:
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by ASUGrad »

matjen wrote:So I wanted to close the loop on this for the benefit of those kind enough to respond and provide their thoughts. My wife and I have decided to outright cancel the policy. The letter has been drafted and signed and will go out tomorrow via email and snail mail. Policy will be cancelled effectively at the end of the month. We have put more money in than we will receive back at this point so I don't think there are any major tax considerations and we are willing to leave any small tax benefit on the table in exchange for the cash which we plan on putting toward the mortgage on a rental property.

Thanks once again to everyone for their input.
Good to hear. I didn't get to post yet on this subject, but I was going to say I did an internship with NWM in college. After one of the sales guys did a mock presentation to us I was the guy who raised my hand and asked, "If the house is paid off, the car is paid off, all other debts are paid, the kids college is funded, and if the husband passes he won't be eating or driving why does the wife need 100% of his income replaced?" Without that 100% income replacement the policy amount dropped by about a million dollars. The answer, "Well the bigger policy costs more and you want a bigger commission don't you?"

They are sleazy insurance salesmen. It sounds like she never needed a 500k policy. If someone was really looking out for her why would they sell her a 500k policy when a smaller policy would do? They weren't, they wanted the commission. Unless of course the old mortgage was 500k, but even in that case why not do a term policy that decreases every year for the length of the mortgage?
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

dhodson wrote:
matjen wrote:
dhodson wrote:out of curiosity will you inform Hunt as he asked?
You know I really didn't think about it until you brought it up. I'll hedge by saying that if I can contact him easily via email (I think I can), then I will let him know and give him the basic reasons. I think the long and short of this is that given our current financial posture, this policy doesn't really serve as anything other than a moderate stable value fund. The death benefit is of no use to us now and, even if a child arrives, will have limited value given the other anticipated assets. Viewed in isolation the policy (and how far into it we are) doesn't look that horrible I suppose but as part of the entire picture not as enticing.

If we communicate and he adds some new info I will be sure to add it to this thread. I assume that is why you were curious dhodson?
Partly. Let me just say i agree with your thoughts (not that it matters of course bc im just some random person on the internet). Ive used Hunt in the past to evaluate a policy myself. I found him to be a fine person but his method assumes you value the insurance. Additionally if you look at his most recent post about insurance, he seems to be bending towards VULs bc of concern of how WL will perform in the future. I have no idea how much detail you gave him about yourself but i find his conclusions a little too insurance pro for someone who doesnt need any insurance.
Well I heard back from James Hunt and he continues to pretty strongly disagree even though I made the overall financial situation very clear. I'm not sure he really answered any of my issues directly. He puts a ton of weight into the slow, gradual appreciation of the policy value which he views as almost risk free. I encouraged him to participate at Bogleheads because he mentioned he may be interested and wasn't certain as to how much insurance knowledge there is here (especially after I told him there was near unanimity in dumping this policy!). So perhaps he will chime in on this thread or later ones. Here were his thoughts. I probably should look more closely at how I am going to terminate this at a minimum I suppose.

Any additional thoughts are welcome as always.

James Hunt:
"If you decide to surrender, do so as of 2/10/15 when the dividend is payable. But I think you'd be foolish to give up this policy when, subject to check with NML, it could then be placed on reduced paid-up status without being a MEC (adverse potential taxes). That would leave an absolutely safe investment yielding about 1% less than the rate NML is currently crediting, 5.6%. You can't invest anywhere safely, meaning no credit or market risk, at such a rate. That return would be income-tax-free until the surrender value caught up to total premiums paid (or what NML says is tax basis)"
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by HomerJ »

matjen wrote:James Hunt:
"If you decide to surrender, do so as of 2/10/15 when the dividend is payable. But I think you'd be foolish to give up this policy when, subject to check with NML, it could then be placed on reduced paid-up status without being a MEC (adverse potential taxes). That would leave an absolutely safe investment yielding about 1% less than the rate NML is currently crediting, 5.6%. You can't invest anywhere safely, meaning no credit or market risk, at such a rate. That return would be income-tax-free until the surrender value caught up to total premiums paid (or what NML says is tax basis)"
How does James Hunt know that NML is going to return 4.6% guaranteed, when NML's in-force illustration shows that THEY are only guaranteeing 0.5% return? They may indeed return more, they are likely to return somewhat more, but they are only guaranteeing 0.5% return...

I also like how he points out the going-forward return is income-tax-free until the surrender value catches up to the total premiums paid. Tax-free because the policy has NEGATIVE returns so far.

Who is James Hunt anyway?
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by Optimistic »

HomerJ wrote:Who is James Hunt anyway?
http://www.evaluatelifeinsurance.org/ wrote:Evaluate Life Insurance –Who Performs the Service? James H. Hunt, a retired life insurance actuary and a former insurance commissioner of Vermont, operates the ROR service. He has reviewed thousands of policies since 1984 when he began the service. Because the analysis is highly technical, he adds a personal note to each printout providing his recommendations, which frequently include better alternatives. In the case of policies you’re thinking of buying, it is not uncommon for his recommendations to lead to savings in the thousands of dollars.
I first heard of James Hunt through Clark Howard.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by dhodson »

HomerJ wrote:
matjen wrote:James Hunt:
"If you decide to surrender, do so as of 2/10/15 when the dividend is payable. But I think you'd be foolish to give up this policy when, subject to check with NML, it could then be placed on reduced paid-up status without being a MEC (adverse potential taxes). That would leave an absolutely safe investment yielding about 1% less than the rate NML is currently crediting, 5.6%. You can't invest anywhere safely, meaning no credit or market risk, at such a rate. That return would be income-tax-free until the surrender value caught up to total premiums paid (or what NML says is tax basis)"
How does James Hunt know that NML is going to return 4.6% guaranteed, when NML's in-force illustration shows that THEY are only guaranteeing 0.5% return? They may indeed return more, they are likely to return somewhat more, but they are only guaranteeing 0.5% return...

I also like how he points out the going-forward return is income-tax-free until the surrender value catches up to the total premiums paid. Tax-free because the policy has NEGATIVE returns so far.

Who is James Hunt anyway?
If I'm not mistaken he was previously the insure com for the state of Vermont. He is one of what I think is about a dozen or so independent people who advertise providing independent advice. Ive used his services before. He has a specific method of evaluating your illustration. That method values the insurance part. It is true that one needs to evaluate the decision to surrender a policy differently then the purchase of it. Since the costs are mostly front loaded, going forward can be okay but you have to want a death benefit since accessing the money tax free requires keeping it in force until death. The higher return is also always in the death benefit.

He doesn't know what the return will be in the future. Nobody does. If you go to his site, you will notice he has some writings on his thoughts on insurance. Interesting, his most recent from last year isn't very whole life favorable for the future.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by HomerJ »

dhodson wrote:He doesn't know what the return will be in the future. Nobody does.
Then I feel he shouldn't be telling people...
That would leave an absolutely safe investment yielding about 1% less than the rate NML is currently crediting, 5.6%.
Even if he's right, one has to DIE to get that return from the death benefit.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by White Coat Investor »

Sorry I went AWOL on this one. I've sent a number of people to Hunt and seen his analysis on a few. I agree he's a bit more pro-insurance than I am (and a lot more than dhodson). In his analyses he tends to use the projected return, which I think is a little too optimistic. He also assumes you value the insurance, which is fine, if that's true.

Your illustration looks like most of those I've seen. You're paying $6715 a year. I find it hilarious that you're paying extra so the premiums will be made in case you're disabled...while you're sitting on a mid 7 figure net worth. That seems a less than optimal choice and I'm not surprised to see they suckered you into paying that. At any rate, if you'll invest for 40 total years (34 more plus the 6 you already have) you will be guaranteed a sum of $323,982. I calculate that return as 0.89% per year. If you get the projected sum of $716,754 that would be a return of 4.31%, which is actually quite a bit lower than I usually see these things projected. I wouldn't be surprised to see you get a 3% return out of it when all is said and done. That's great, I guess, but hardly something I'd tie my money up for the rest of my life for. You need to really value the other benefits of whole life in order to accept the abysmal long term returns.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by dhodson »

EmergDoc wrote:Sorry I went AWOL on this one. I've sent a number of people to Hunt and seen his analysis on a few. I agree he's a bit more pro-insurance than I am (and a lot more than dhodson). In his analyses he tends to use the projected return, which I think is a little too optimistic. He also assumes you value the insurance, which is fine, if that's true.

Your illustration looks like most of those I've seen. You're paying $6715 a year. I find it hilarious that you're paying extra so the premiums will be made in case you're disabled...while you're sitting on a mid 7 figure net worth. That seems a less than optimal choice and I'm not surprised to see they suckered you into paying that. At any rate, if you'll invest for 40 total years (34 more plus the 6 you already have) you will be guaranteed a sum of $323,982. I calculate that return as 0.89% per year. If you get the projected sum of $716,754 that would be a return of 4.31%, which is actually quite a bit lower than I usually see these things projected. I wouldn't be surprised to see you get a 3% return out of it when all is said and done. That's great, I guess, but hardly something I'd tie my money up for the rest of my life for. You need to really value the other benefits of whole life in order to accept the abysmal long term returns.

Is that a compliment or a dig at me?

Just kidding...
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by Frugal Al »

EmergDoc wrote:In his analyses he tends to use the projected return, which I think is a little too optimistic. He also assumes you value the insurance, which is fine, if that's true.
Great thread, and hopefully instructional. It's easy to be pro-insurance if one assumes a need for the insurance. It appears James Hunt assumes an implied permanent insurance need, with the further implication being the initial purchase was for valid reasons. Of course MOST whole life purchases are not due to valid reasons--it's a product oversold for the wrong reasons.

Free cat food is great if I have a cat. If I don't have a cat, why did I procure the food? From an insurer's prospective, they provide insurance that is almost free in the long term, which allows your premiums to grow at a rate than might barely beat inflation. If I don't need the permanent insurance (most don't), this truly becomes a very poor investment. Hunt himself notes, "This is a policy well worth holding, an extraordinarily valuable asset prospectively when other safe investments yield so little." Any decision NOT to cancel would have to be made with the next 40 years in mind. Our low interest rate environment will not last forever. Good decision to cancel, matjen.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by matjen »

Thank you everyone for chiming in again on this. I was honestly hoping to just deliver my cancellation letter via email and snail mail and be done with it, but Hunt suggests waiting until the dividend is "payable" in 2/15. So another 9 payments or so. I just assumed the cash value was adjusted each month and it is what it is at the time of cancellation. I'll review the contract/paperwork but does anyone have thoughts (assuming cancellation) on the timing issue?

Thanks once again.
Last edited by matjen on Tue May 20, 2014 10:25 am, edited 1 time in total.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by dhodson »

matjen wrote:Thank you everyone for chiming in again on this. I was honestly hoping to just deliver my cancellation letter via email and snail mail and be done with it, but Hunt suggests waiting until the dividend is "payable in 2/14. So another 9 payments or so. I just assumed the cash value was adjusted each month and it is what it is at the time of cancellation. I'll review the contract/paperwork but does anyone have thoughts (assuming cancellation) on the timing issue?

Thanks once again.

He is correct that you wont get the dividend until the anniversary date. I too would wait at this point.
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Re: Northwestern Mutual Life - Whole Life Policy Review

Post by mephistophles »

matjen wrote:Thank you everyone for chiming in again on this. I was honestly hoping to just deliver my cancellation letter via email and snail mail and be done with it, but Hunt suggests waiting until the dividend is "payable" in 2/15. So another 9 payments or so. I just assumed the cash value was adjusted each month and it is what it is at the time of cancellation. I'll review the contract/paperwork but does anyone have thoughts (assuming cancellation) on the timing issue?

Thanks once again.
If you are going to surrender the policy, you might want to consider doing it now. The total cash surrender value in a traditional whole life policy has two components. The first component is guaranteed cash value which is internal to the contract. It only increases whenever you make a premium payment. The amount of this periodic increase depends on how long the policy has been inforce. The second component is the dividend account. It consists of an annual dividend, paid once a year on the policy anniversary and it is added to your dividend account or paid out based on the dividend option chosen. It usually only makes sense to wait for the dividend date if the premiums paid in the meantime are reasonably less than the annual dividend itself.

On the subject of an ex-insurance commisioner evaluating indiviual insurance for a fee, personally I don't think it is ethical to use the power and publicity of a previous office, serving the public, as leverage to gain clients. Also, unless that commissioner was a licensed agent at some point it is extremely doubtful that they would know as much about the whole life product as an experienced licensed agent or a CLU.
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